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Coverage Pointers - Volume IV, No. 10

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11/07/02:         TISHMAN CONSTR. CORP. OF NY v. AMERICAN MFRS. MUT. INS. CO.

New York State Supreme Court, Appellate Division, First Department

Additional Insured’s Negligence Does Not Preclude Application of Additional Insured Endorsement

Plaintiff contracted with Newport to perform painting work, pursuant to which Newport was obligated to procure primary commercial liability insurance coverage for plaintiff and the property owner. Newport obtained a policy that included an additional insured endorsement providing coverage to any entity that Newport was contractually required to insure for liability arising out of Newport’s “work” for that additional insured. In this action for coverage under the policy, the insurer contended that it should not be held to this endorsement because the injured claimant was not doing Newport’s work at the time of the accident, but was acting as plaintiff’s special employee; he was acting under plaintiff’s exclusive control and supervision, and performing work in tandem with plaintiff’s employee pursuant to a dangerous method devised by plaintiff that was the subject of an unsigned change order not part of the contract. The court held that any negligence by the additional insured in causing the accident was not material to application of the additional insured endorsement. Since there was no dispute that Newport was the painting contractor and, at a minimum, plaintiff’s general employer, and no dispute that claimant was injured while performing painting work, his activity related to the work performed by Newport under the contract, and, accordingly, was within the endorsement. Nor was the work that claimant was doing at the time of the accident beyond the scope of the contract simply because the change order issued nine months after the accident was never signed. The additional work was the result of a walk-through by the property owner who wanted an item painted a different color, whereupon Newport prepared and signed a proposal for the additional work, and was paid for the work.

 

11/07/02:         ST. VINCENT’S HOSPITAL OF RICHMOND v. AMERICAN TRANSIT INS. CO.

New York State Supreme Court, Appellate Division, Second Department

No-Fault Carrier’s 30-Day Period to Pay or Deny Claim Following Timely Request for Verification Runs from Receipt of Verification Information

Plaintiffs commenced this action to recover no-fault medical payments allegedly due for hospital bills. The hospital moved for summary judgment arguing that the insurer failed to either pay or deny the claims within 30 days of its receipt of proof of the claims. The insurer cross-moved for summary judgment on the ground that it timely sent letters and follow-up letters requesting additional verification, to which the hospital did not respond.  The court held that summary judgment should have been granted to the insurer. Hospital’s argument that insurer’s timely requests for hospital records were ineffective to toll its time to pay or deny the claims because they were made by letter rather than by prescribed form was without merit. The hospital forms sent to the insurer stated that all inquiries should be directed to its attorney’s office. Thus, the hospital’s attorney was its authorized representative for the purposes of receiving and responding to requests for further verification of the claims.  An insurer is not obligated to pay or deny a claim until it has received verification of all relevant information requested (11 NYCRR 65.15[g][1][i], [2][iii]). It was undisputed that the hospital failed to respond to the insurer’s timely verification requests. Accordingly, the 30-day period within which the insurer was required to respond did not begin to run and the complaint should have dismissed.

 

11/04/02:           

KEHOE v. NATIONWIDE MUT. INS. CO.

New York State Supreme Court, Appellate Division, Second Department

Fight is “Criminal Act” Despite Acquittal

Where the provisions of an insurance contract are clear and unambiguous, they must be given their plain and ordinary meaning. The subject policy explicitly excluded coverage for claims arising out of criminal or intentional acts, regardless of whether the insured was actually charged with, or convicted of, a crime. Notwithstanding the allegations of negligence in the underlying personal injury action, the allegations arose out of an incident involving intentional or criminal acts.

 

ACROSS BORDERS

 

Visit the HOT CASES section of the Federation of Defense and Corporate Counsel website for cases covering a broad range of legal issues from other jurisdictions.

 

11/14/02:         PORT AUTH. OF NEW YORK & NEW JERSEY v. AFFILIATED FM INS. CO.

Third Circuit (applying New Jersey law)

Cost of Correcting Asbestos Not Within Scope of First-Party Policy Unless Structural Integrity of Building in Question

Unless asbestos in a building were of such quantity and condition as to make the structure unusable, the expense of correcting the situation was not within the scope of a first-party insurance policy covering “physical loss or damage.”

 

11/08/02:            CAVIGLIA v. ROYAL TOURS OF AMERICA

New Jersey Appellate Division

NJ Appellate Court Strikes Down Amendments to No Fault Law as Unconstitutional

The 1997 amendment of N.J.S.A. 39:6A-4.5 effected the dramatic change of precluding suit by an uninsured injured driver against the tortfeasor for any element of damage. The section precluded an uninsured motorist any opportunity at all to obtain compensation for any of his losses from the person who negligently or intentionally inflicted them irrespective of the severity of his injuries, irrespective of his freedom from fault for the occurrence of the accident, irrespective of whether the tortfeasor himself was uninsured, and irrespective of whether the tortfeasor was driving while intoxicated or under some other disability. Court was persuaded that this total preclusion is constitutionally unsustainable under the State’s equal protection and substantive due process jurisprudence.

 

11/07/02:            POPE v. ECONOMY FIRE & CASUALTY

Illinois Appellate Court

Insured Cannot Maintain an Action for Anticipatory Breach of Duty to Defend Lead Paint Lawsuit

Insured notified carrier of potential lead paint lawsuit and carrier denied coverage. Insured never sent suit papers to liability carrier when the plaintiff later brought an action. In an action to compel carrier to reimburse insured for defense costs incurred in that lawsuit, appellate court refused to permit the insured to rely on theory of anticipatory breach. The insurer’s obligation to defend its insured would have been based on pleadings never sent to the carrier for defense. Likely, insurer WOULD have been required to defend had it been given the opportunity.

 

11/07/02:            SHELTER MUTUAL INS. CO. v. MAPLES

Eighth Circuit

Possible Exception to Mold Exclusion in Homeowner’s Policies

Plaintiff contracted to build a home and took out a homeowner’s insurance policy from Defendant. Before construction was completed, a water pipe froze and burst causing standing water in the basement. Consequently, the water caused mold to form on all the interior surfaces of the residence forcing the home to be torn down. Plaintiff’s insurance policy specifically excluded mold, but also specifically covered water damage. The Eighth Circuit held that it was improper to grant summary judgment to the insurer because it was unclear what the “efficient and dominant” cause of the damage was, which created a fact issue. If the frozen pipe, and not the mold, was the “dominant” cause, then the mold exclusion will not apply.

Prepared by George S. McCall of Kern and Wooley LLP in Irving, Texas.

 

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ST. VINCENT’S HOSPITAL OF RICHMOND v. AMERICAN TRANSIT INS. CO.

 

In an action to recover no-fault medical payments under a uniform contract of insurance, the defendant appeals from (1) an order of the Supreme Court, Nassau County (Burke, J.), dated November 14, 2001, which granted the motion of the plaintiff St. Vincent's Hospital of Richmond for summary judgment on the first and second causes of action and denied its cross motion for summary judgment dismissing the complaint, and (2) a judgment of the same court, dated January 8, 2002, which is in favor of the plaintiff St. Vincent's Hospital of Richmond and against it on the first and second causes of action. The notice of appeal from the order dated November 14, 2001, is deemed also to be a notice of appeal from the judgment dated January 8, 2002 (see CPLR 5501[c]).

 

ORDERED that the appeal from the order is dismissed; and it is further,

 

ORDERED that the judgment is reversed, on the law, the order dated November 14, 2001, is vacated, the motion is denied, the cross motion is granted, and the complaint is dismissed; and it is further,

 

ORDERED that one bill of costs is awarded to the appellant.

 

The appeal from the intermediate order must be dismissed because the right of direct appeal therefrom terminated with the entry of judgment in the action (see Matter of Aho, 39 NY2d 241, 248). The issues raised on appeal from the order are brought up for review and have been considered on the appeal from the judgment (see CPLR 5501[a][1]).

 

The plaintiff St. Vincent's Hospital of Richmond (hereinafter the hospital), among others, commenced this action, as assignee of two claims, to recover no-fault medical payments allegedly due for hospital bills under an insurance contract. The hospital moved for summary judgment on the first and second causes of action arguing that the defendant, American Transit Insurance Company (hereinafter American Transit), failed to either pay or deny the claims within 30 days of its receipt of proof of the claims. American Transit cross-moved for summary judgment dismissing the complaint on the ground that it timely sent letters and follow-up letters requesting additional verification, to which the hospital did not respond. American Transit argued that the time within which it had either to pay or deny the claims did not begin to run and, therefore, the hospital's commencement of this action was premature.

 

The Supreme Court erred in granting the hospital's motion for summary judgment and in denying American Transit's cross motion for summary judgment. The hospital's argument that American Transit's timely requests for the assignors' hospital records were ineffective to toll its time to pay or deny the claims because they were made by letter rather than by prescribed form is without merit (see Nyack Hosp. v Progressive Cas. Ins. Co., 296 AD2d 482; New York Hosp. Med. Ctr. of Queens v State Farm Mut. Auto. Ins. Co., 293 AD2d 588, 590; New York & Presbyt. Hosp. v American Tr. Ins. Co., 287 AD2d 699, 700-701). The hospital forms sent to American Transit stated that all inquiries should be directed to its attorney's office. Thus, the hospital's attorney was its authorized representative for the purposes of receiving and responding to requests for further verification of the claims (see New York Hosp. Med. Ctr. of Queens v State Farm Mut. Auto. Ins. Co., supra at 590-591). Even if American Transit's request for the hospital records should have been sent directly to the hospital, its attorney, upon receiving the requests, should have contacted American Transit and communicated that requirement, or forwarded American Transit's requests to the hospital himself (see New York Hosp. Med. Ctr. of Queens v State Farm Mut. Auto. Ins. Co., supra at 591; Westchester County Med. Ctr. v New York Cent. Mut. Fire Ins. Co., 262 AD2d 553, 555).

 

An insurer is not obligated to pay or deny a claim until it has received verification of all relevant information requested (see 11 NYCRR 65.15[g][1][i], [2][iii]; New York Hosp. Med. Ctr. of Queens v Country-Wide Ins. Co., 295 AD2d 583; Westchester County Med. Ctr. v New York Cent. Mut. Fire Ins. Co., supra at 554). It is undisputed that the hospital failed to respond to American Transit's timely verification requests. Accordingly, the 30-day period within which American Transit was required to respond did not begin to run and the Supreme Court should have dismissed the complaint.

 

SMITH, J.P., McGINITY, LUCIANO and CRANE, JJ., concur.

 

TISHMAN CONSTRUCTION CORP. OF NEW YORK v. AMERICAN MANUFACTURERS MUT. INS. CO.

 

Order and judgment (one paper), Supreme Court, New York County (Paula Omansky, J.), entered October 29, 2001, declaring that defendant American Manufacturers Mutual Insurance Co. (AMMI) must reimburse plaintiff construction manager (Tishman) and property owner for all of their defense costs in an underlying personal injury action brought against them by an employee (O'Keefe) of one of Tishman's subcontractors (Newport), and that AMMI must indemnify Tishman and the property owner for the settlement in the O'Keefe action up to the extent of its applicable policy limits, unanimously modified, on the law, to remand for a hearing on the reasonableness of the settlement in the O'Keefe action and of the defense costs claimed, and otherwise affirmed, without costs. Appeals from orders and/or judgments, same court and Justice, entered January 16, 2001, May 16, 2001, and on or about August 20, 2001, unanimously dismissed, without costs, as superseded by the appeal from the October 29, 2001 order and judgment.

 

Tishman contracted with defendant Newport to perform painting work on the subject project. Under the contract, Newport was obligated to procure primary commercial liability insurance coverage for Tishman and the property owner. In accordance therewith, Newport obtained a policy from AMMI that included an additional insured endorsement providing coverage to any entity that Newport was contractually required to insure for liability arising out of Newport's "work" for that additional [*2]insured. AMMI contends that it should not be held to this endorsement because O'Keefe, at the time of the accident, was not doing Newport's work but rather was acting as Tishman's special employee, in that he was acting under Tishman's exclusive control and supervision, and performing work in tandem with a Tishman employee, pursuant to a dangerous method of work devised by Tishman that was the subject of an unsigned change order that was not part of the Newport's painting contract.

 

This Court has "consistently held that any negligence by the additional insured in causing the accident underlying the claim is not material to the application of the additional insured endorsement" (Consolidated Edison Co. v United States Fid. & Guar. Co., 263 AD2d 380, 382). Since there is no dispute that Newport was the painting contractor and, at a minimum, O'Keefe's general employer, and no dispute that O'Keefe was injured while performing painting work, his activity related to the work performed by Newport under the contract, and, accordingly, was within the endorsement (see id.). Nor was the work that O'Keefe was doing at the time of the accident beyond the scope of the Tishman/Newport contract simply because the change order that Tishman issued nine months after the accident to evidence this and other work was never signed. The additional work was the result of a walk-through by the property owner who wanted an item painted a different color, whereupon Newport prepared and signed a proposal for the additional work. As it appears from the change order that Newport performed and was paid for the work described in its proposal by an offset against a back charge due Tishman, the inference is inescapable that the proposal was accepted.

 

The IAS court also correctly held that the policy issued to Tishman and the property owner by Zurich Insurance Company was excess to the AMMI policy. As already noted, AMMI was contractually obligated to provide primary coverage. The Zurich policy provided that its coverage would be excess where there was "[a]ny other primary insurance available to you covering liability for damages arising out of the premises or operations for which you have been added as an additional insured by attachment of an endorsement." There is nothing ambiguous about this provision. Nor is there anything ambiguous about the additional insured endorsement in the AMMI policy and its extension of coverage to Tishman and the property owner, even though that they were not identified by name.

 

However, AMMI is entitled to a hearing as to the reasonableness of the underlying settlement and claimed defense costs (see Atlantic Cement Co. v Fidelity & Cas. Co., 63 NY2d 798, 801-802, affg 91 AD2d 412, 419-420), and we modify accordingly.

 

We have considered defendants' other arguments and find them unavailing.

 

KEHOE v. NATIONWIDE MUT. FIRE INS. CO.

 

In an action for a judgment declaring that the defendant was required to defend and indemnify the plaintiffs in an action entitled Zervas v Northport-East Northport Union Free School District, pending in the Supreme Court, Suffolk County, under Index No. 0145/00, the defendant appeals from (1) an order of the Supreme Court, Suffolk County (Molia, J.), dated January 8, 2002, which granted the plaintiffs' motion for summary judgment and denied its cross motion for summary judgment dismissing the complaint, and (2), a judgment of the same court, entered July 15, 2002, in favor of the plaintiffs and against it.

 

ORDERED that the appeal from the order is dismissed; and it is further,

 

ORDERED that the judgment is reversed, on the law, the order is vacated, the motion is denied, the cross motion is granted, the complaint is dismissed, and it is declared that the defendant is not obligated to defend or indemnify the plaintiffs in the underlying personal injury action; and it is further,

 

ORDERED that one bill of costs is awarded to the defendant.

 

The appeal from the intermediate order must be dismissed because the right of direct appeal therefrom terminated with the entry of judgment in the action (see Matter of Aho, 39 NY2d 241, 248). The issues raised on the appeal from the order are brought up for review and have been considered on the appeal from the judgment.

 

The defendant, Nationwide Mutual Fire Insurance Company (hereinafter Nationwide), insured the plaintiff James T. Kehoe and his son, the plaintiff Brendan T. Kehoe under a homeowners policy that excluded coverage for claims arising out of intentional or criminal acts.

 

The plaintiffs commenced this action for a judgment declaring that Nationwide was obligated to defend and indemnify them in an underlying personal injury action. The underlying personal injury action arose out of an alleged fight on October 24, 1998, in the parking lot of the Northport High School involving Brendan and Joseph Zervas (hereinafter Zervas) after a school homecoming dance. The complaint in the underlying personal injury action alleged, inter alia, that Brendan "carelessly, recklessly and negligently" caused Zervas's injuries. In February 1999 Brendan was charged with assault in the third degree in connection with the October 24, 1998, incident. The assault charge against Brendan was dismissed approximately 1 1/2 years later.

 

In February 2002 the plaintiffs moved in this action for summary judgment in their favor, and Nationwide cross-moved for summary judgment dismissing the complaint. The Supreme Court granted the plaintiffs' motion for summary judgment and denied the cross motion by Nationwide for summary judgment dismissing the complaint. Judgment was subsequently entered in favor of the plaintiffs.

 

Where the provisions of an insurance contract are clear and unambiguous, they must be given their plain and ordinary meaning (see United States Fid. & Guar. Co. v Annunziata, 67 NY2d 229, 232). The subject policy explicitly excluded coverage for claims arising out of criminal or intentional acts, regardless of whether the insured was actually charged with, or convicted of, a crime. Notwithstanding the allegations of negligence in the underlying personal injury action, such allegations arose out of the October 24, 1998, incident involving intentional or criminal acts.

 

Accordingly, Nationwide established its prima facie entitlement to summary judgment by demonstrating that the subject claim was excluded under the terms of the policy (see generally Zuckerman v City of New York, 49 NY2d 557, 562). The plaintiffs failed to establish their prima facie entitlement to summary judgment in support of their motion, and failed to raise a triable issue of fact in opposition to the cross motion. Therefore, the Supreme Court erred in granting the plaintiffs' motion and in denying Nationwide's cross motion for summary judgment.

 

In light of our determination, we need not reach Nationwide's remaining contention.

 

SMITH, J.P., SCHMIDT, ADAMS and COZIER, JJ., concur.

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